Tightrope walk on the great wall

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Probably no segment in the Chinese sporting goods business has drawn as much attention over the last 15 years as the outdoor category. It has enjoyed a remarkable boom which now seems to be slowing. The future of the outdoor industry will probably be shaped by consolidation and the development of a “real” outdoor community.

It’s the brand that counts – a shopping center in Beijing offering a vast assortment of outdoor merchandise.

Image credit: Thinkstock

A number of market reports have produced reliable estimates for the evolution of the Chinese outdoor business over the past few years. They vary in detail, but point to similar conclusions and trends. One of these studies was compiled by the industry federation China Outdoor Commerce Alliance (COCA) with the support of the ISPO BEIJING and ISPO SHANGHAI trade shows.

Tremendous rise over 15 years

The first humble attempts at outdoor retailing in China emerged in the second half of the 1990s, when the outdoor goods trade was in the hands of just a few small shops which struggled to purchase products due to the absence of a proper distribution structure. Merchandise was purchased, in part unofficially, at factories that manufactured for Western brands.

The industry started at the millennium from scratch, when Western brands began to discover the market and to set up distribution and company-owned shops. COCA research shows that, by 2013, total sales from all points of sale offering outdoor-related merchandise were an impressive RMB 20.1 billion (€2.76 billion).

This represents a 11.3 percent increase over the prior year and puts China’ overall market size in the same league as larger mature markets such as Germany. Not forgetting that China has a far larger population and that the sector emerged much later than in Western countries.

Outdoor upside down – from top to bottom

At an early stage, the Chinese outdoor business took the opposite direction to what had happened in North America and Europe decades previously. In the West, brand building worked bottom up, mainly through smaller independent multi-brand stores. In the Far East, however, the big brands – no matter whether domestic or international – developed their business through own single-branded stores right from the beginning, top down.

This different strategy led to the development of a specifically Chinese retail landscape. It’s very urban, and is by no means carried by stores located in popular climbing or hiking hotspots. The bulk of outdoor retailing takes place in big cities where there is high buying power and people mainly purchase in shopping malls – at least for now.

Market research from another industry federation, China Outdoor Association (COA), suggests that, in 2014, about 60 percent of all outdoor-related shops in the country were single-branded shops from larger and smaller brands. And they sell fashion rather than technical products.

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Worries about oversupply

The fast-growing Chinese outdoor market has naturally created desire – which has begun to worry market players and observers alike. Experts already see – and expect for the future – ongoing oversupply both on by retailers and brands. The authors of the COCA report documented the evolution of the number of points of sales for 2014.

In 2014 six percent more companies were competing on the market. The number of Chinese brand grew significantly: In total 504 companies were registered which is a growth of ten percent in comparison to the year before. In the same period foreign brands only rose 1,85 percent (an increase from 433 to 441).

Similar to the West, the majority of trading remains in the hands of just a few brands. The undisputed market leader is Toread, a domestic company, followed by U.S. brands Columbia and The North Face and Jack Wolfskin as well as Kailas, a rather technically oriented Chinese brand. Estimations say that about 80 percent of total sales in the country are under control of the top 60 vendors.

The number of shops, too, is widely considered as overpowered. The China Outdoor Association believes that there were, in 2013, a total of 12,400 points of sale around the country, of which about 8,740 were single-branded shops and only 3,680 multi-brand outlets. These estimates do not even include online shops which take a market share (in terms of turnover) of nearly 20 percent.

And it is believed that all the figures stated here are still rising. As far as brick-and-mortar shops go, the bulk of them are still located in wealthier metropolitan areas along the Pacific coast. Competition there has become so fierce that the shops offer discounts of up to 50 percent which have a negative impact on the profitability.

The Chinese economy got a cold shower right at the start of the New Year. According to the national customs authorities, exports slipped by 11.1 percent and imports even more by 18.8 percent in January compared with 12 months ago.

Opportunities in the west and in the community

Nonetheless, the market continues to grow at an amazing rate. The western part of the huge country with its impressive outdoor arenas, less competition (at present) and lower operational costs for shops (leases, staff etc.) still represents a source of opportunities.

In the long-term, the industry should manage to convert these potential opportunities – on one condition. It will have to work to build a real community of outdoor enthusiasts. The industry should be able to rely on increasingly large numbers of people who really do go climbing, hiking and camping. This clientele might well prove more reliable than the fickle group of fashion-driven customers who shop in big city malls.

Certain figures indicate that the future potential of the industry might be linked to a “real” outdoor community. Recent estimates say that there are just 50,000 climbers in the country and only 100 climbing walls. Given the size of the population, this is a drop in the ocean. In other words, the Chinese outdoor business is still in early stages – and has plenty of potential.